Understand which invoice payments are included in payment times reports, who's responsible for reporting and when an invoice is considered paid.
On this page
- Invoice payments to report
- Entity responsible for reporting
- Invoice issue (receipt) day
- Paid invoices
- Disputed invoices
- Recipient created tax invoices
- Credit notes
- What not to report
Invoice payments to report
Reporting entities must report on an invoice payment if all of the following apply.
- The invoice relates to supply of a good or service from a small business supplier.
- The entity procured the good or service from the small business supplier under a trade credit arrangement.
- The reporting entity is contractually obliged to pay the invoice.
If an invoice covers a number of payments to be made under different contracts, it should be counted separately. If one of the contracts wasn't in scope of reporting, the payment won't need to be included in a payment times report.
Goods and services
For the purposes of the scheme:
- goods are items that are usually tangible and articles of trade, wares or merchandise, such as office equipment, machinery and food
- services are activities provided by other people, such as medical providers, trades persons, and delivery people.
Trade credit arrangements
A trade credit arrangement is a broad term. It's where a business and a supplier agree that payment will be made after supply of goods or services .
The agreement can be:
- a written contract
- an oral agreement
- partly written and partly oral.
It's any agreement between 2 or more parties that's intended to be legally binding.
If an entity and the supplier have an arrangement where they agreed that payments will be made after supply, but payment is made at the time or before supply, the payment is still part of a trade credit arrangement.
If an entity and the supplier have an arrangement where they agreed payment is to be made at the time, or before, the goods are supplied, the payment isn't part of a trade credit arrangement.
Entity responsible for reporting
Under the Act:
- reporting entities must report on invoice payments for goods and services they've procured from small business suppliers under a trade credit arrangement
- a small business invoice is a document issued to an entity that notifies them of an obligation to pay an amount for supply of the goods and services.
Entities must report on the small business invoices that they have a legal responsibility to pay. This responsibility rests with the entity that contracted a small business supplier to procure a good or service. This applies even if an administrative arrangement or the contract allows another entity to make the payment.
For some reporting entities this involves reporting on small business invoices they've paid directly. For others it involves reporting on small business invoices paid on their behalf through another entity. The paying entity may be an agent, broker, shared service entity or special purpose vehicle.
An agent, broker or special purpose vehicle may contract with a small business supplier and distribute the goods to other entities. In this case they report on the invoice payments. This is because they're the contracting party and have the legal obligation to pay.
A group of entities may have a central agency agreement with its small business suppliers. If the entities engage with these suppliers through a purchase order, the purchase order represents the contractual agreement with the supplier. It activates the procurement of goods and services, so establishes the obligation to pay. The entity that engages the supplier through the purchase order must report on the invoice payments.
Entity X procures goods from a supplier and agrees that Shared Service Entity Y will pay the invoice. Entity X must report on the invoice. This is because they procured the goods from the supplier so are contractually obliged to pay. Entity Y doesn't report on the invoice payments as they didn't contract the supplier.
Invoice issue (receipt) day
The invoice issue day, also called the receipt date, is when an invoice is received by the reporting entity.
An invoice is ‘received’ and the payment clock starts when it's received by the entity in accordance with the contract's invoicing requirements (either written or oral).
This could include contractual arrangements for payments to be made. For example, having to provide the invoice to a particular email address or requiring that the invoice includes a purchase order number and ABN.
The contractual arrangements may also deal with matters such as the treatment of backdated or incorrect invoices.
The date of receipt of an invoice is not:
- when the invoice is entered into the entity’s accounting or information systems
- when the invoice is authorised.
That is, unless these processes happen on the same day the invoice is received.
If the receipt date is unknown or can't be established (for example, the entity receives paper invoices), then the date of the invoice can be used as the date of receipt.
In accepting an invoice from a small business supplier (as meeting the contractual arrangements), a reporting entity accepts the obligation to pay the supplier the invoiced amount.
Incorrectly received invoice
An employee of a large business receives an invoice from a small business. The 2 businesses have a contractual arrangement. The arrangement states invoices will only be accepted if they're submitted to the large business’s shared inbox.
Until that invoice is received in the shared inbox, the invoice isn't 'received'. The payment clock for this invoice hasn't started yet.
Invoice received date isn't known
A reporting entity receives invoices in various ways, including electronically and by post. Invoices received electronically have information available on when the invoice was received.
Invoices received in the post aren't date stamped. They may be processed into the entity's accounting system a few days after the invoice was received in the mail.
In this case, the entity can use the date marked on the invoice. This is because it's unable to provide the date the invoice was received.
When calculating payment times for a small business invoice that isn't using supply chain finance arrangements, the invoice is paid as follows:
- direct debit – when the amount has been debited from the bank account
- credit or procurement card – when the amount has been debited from the credit or procurement card account
- cheque – when the cheque has been given to the supplier
- cash transactions – when the money has been given to the supplier.
If an invoice is paid before it's received, and there's a trade credit arrangement in place, it has a zero-payment time. This is included in a report under the bracket of payments made within 20 days.
Supply chain finance arrangements
Where supply chain finance arrangements are used, the invoice is considered paid at the end of the relevant supply payment period.
This is intended to ensure that a large business calculates payment times where supply chain finance arrangements are used on the basis of the standard payment period. That is, the payment time that would ordinarily have occurred had supply chain financing not been used.
- if the standard payment term is 30 days and after being offered a dynamic discount of 2% the supplier elects to receive payment in 10 days, the reporting entity must use 30 days when calculating its payment times for reporting purposes
- if the standard payment term is 30 days but the supplier and reporting entity have negotiated a settlement discount where the supplier will accept a 2% discount for the invoice to be paid within 5 days, the reporting entity must use 30 days when calculating its payment times for reporting purposes.
This ensures payment times are reported transparently and not obscured by supply chain finance arrangements.
A large business enters a contractual arrangement with a small business supplier. The contract specifies that the supplier will be paid 60 days after receipt of a correctly rendered invoice.
The contract also states that the large business can have a 3% discount on the invoice value if they pay within 20 days. The reporting entity records the date of invoice receipt. The payment time starts from this day.
The large business accepts the 3% discount offered in the contract and pays the invoice on day 20.
This arrangement meets the definition of a supply chain finance arrangement under the scheme. The large business records the payment time as 60 days. This is the end of the relevant supply payment period.
Partially paid invoice
Invoices can be partially paid by mutual agreement, for example, in monthly instalments. The payments can be reported as having been paid in full providing the instalments are made on time. In this instance, the receipt of invoice date for the next instalment will be the day after the latest instalment was due.
Invoices that are partially paid without the agreement of the supplier can't be recorded as having been paid until the invoice is paid in full.
A large business receives an invoice on 1 June 2021. Payments can be made in 2 monthly instalments on the 30th of each month. They make a payment on 30 June 2021 and then on 30 July 2021.
For the purposes of reporting, the payment clock commences and ends as follows:
- invoice received: 1 June 2021
- invoice instalment due: 30 June 2021
- invoice paid: 30 June 2021
- reported as: payment made within the 21 to 30 day band.
- invoice received: 1 July 2021 (although no second invoice was received, the receipt of invoice is the day after the latest instalment was due)
- invoice instalment due: 30 July 2021
- invoice paid: 30 July 2021
- reported as: payment made within the 21 to 30 day band.
Disputed invoices must be included in the calculation of a payment time if the dispute occurs after the invoice has been accepted by the reporting entity as meeting contractual requirements.
The time taken to resolve an incorrect invoice should be included in a payment times calculation where the invoice has already been accepted as meeting contractual requirements.
Reporting entities may outline the requirements for accepting invoices in their contract with a small business. This may include how they intend to deal with incorrect or disputed invoices. For example, if a supplier contract specifies that an invoice cannot be accepted by the reporting entity if it's incorrect, the payment times clock will not start until a correct invoice is received.
If the invoice does meet the contractual requirements, the payment times clock will continue. This is whether or not a dispute occurs or the invoice is incorrect.
Disputed invoices that are paid in a reporting period must be reported in the relevant payment bracket to reflect when they were paid. For example, within 20 days, 21 to 30 days, 31 to 60 days, 61 to 90 days, 91 to 120 days or 120 days plus.
Disputed invoices are considered resolved when the earlier of the following occurs:
- Both parties reach an agreement over the dispute and payment is made.
- The small business supplier hasn't raised a dispute and the contractual dispute period has ended.
Invoices partially paid without the supplier's agreement should be reported the same way as disputed invoices. For example, from when the invoice was received until when it was paid in full in accordance with the agreement.
Reporting entities can give context or explanation in relation to their disputed invoices. This is done in a free text field in the payment times report.
Information included in this field should be broad and general in nature. The Regulator can refuse to publish certain information if it:
- is personal information
- is commercial-in-confidence
- is irrelevant to the objectives of the scheme.
Payment of invoice disputed during dispute period
A large business receives an invoice for 100 units of a product. In reconciling the goods they found 10 units of the product were defective. The large business accepts the goods. It pays for 90 units of the product (instead of 100 units), 30 days after it received the invoice.
Under its contract, the small business supplier can raise a dispute within 30 days of receiving payment. The small business supplier disputes the payment within this timeframe. The matter is resolved 55 days after the invoice was received.
The large business must report this payment in the 31 to 60 day band.
Payment of an invoice not disputed within dispute period
A large business receives an invoice for 100 units of a product. In reconciling the goods they found 10 units of the product were defective. The large business accepts the goods and pays for 90 units of the product (instead of 100 units), 30 days after it received the invoice.
Under its contract, the small business supplier can raise a dispute within 30 days of receiving payment. The small business supplier doesn't dispute the payment within this timeframe. The matter is considered resolved.
The large business must report this payment in the 21 to 30 day band.
Recipient created tax invoices
Recipient created tax invoices (RCTIs) are a method of receiving supplier invoices. This is common practice in the construction industry. They should be reported the same way as standard invoices.
RCTIs are generated by the entity (recipient) in accordance with its contractual arrangements with the suppliers. For example, it specifies the date of invoice issue, credit terms and payment dates.
Where a supplier provides rebates, the invoiced amount should be used in calculations for payment times and practices.
For example, a supplier receives $10 per item for every item up to a total of 10,000 items. They then receive $8 per item after that. Information provided by reporting entities should be based on the actual item price invoiced.
A credit note can be used to offset the value of an invoice, either partially or in full. That's because a credit note reduces the amount that an entity owes to a small business supplier and is therefore obliged to pay.
Invoices that don't require any payment because they're covered by a credit note, don't need to be included in a payment times report.
If an invoice is partly covered by a credit note, the entity should report on the invoice amount they are required to pay. For example, if the invoice is for $100 and a credit note of $20 is applied to the invoice, the entity reports the invoice value as $80.
It's up to the reporting entity how and when they apply a credit note to a small business invoice. When they do and it offsets the value of the invoice, they report the net value in their payment times report.
What not to report
The following items are excluded from payment times reporting:
- payments to other members of the controlling corporation’s group or corporate group
- payments which don't have trade credit arrangements. For example, payments for rental leases that are pre-paid, travel expenses (including airfares, hotels, taxi, etc.) and restaurant or cafe expenses
- payments related to employees, through payroll or reimbursements
- royalty payments to an Australian state or territory government for use of natural resources
- invoices that don't require any payment because they're covered by a credit note.